Well, everyone was max bullish during the dot-com bubble, and stocks still went higher nonetheless. For four years.

Mauldin Economics

Like with the bond market—we are just a few clicks away from having irrefutable evidence that the downtrend in yields has been broken.

Mauldin Economics

When that happens, you can only trade bonds from the short side, not the long side.

I often get accused of oversimplifying things. Some concepts in finance are complicated and should remain that way. But when it comes to money management, if it ain't simple, it can't be good.

The trend is your friend.

It was about nine years ago that I learned, as a trader, that I didn't have to like a trade to be in it. That was the first time that I started using my head instead of my heart. I started buying things that I didn't like, but bought them anyway because the chart was going up.

This money management lesson hereby concludes. For more info, please go back and read the old Market Wizards books.

Witnessing a massive shift

Ray Dalio recently wrote on how profound of a political shift has just occurred—here is the quote that just punches you right between the eyes:

"Regarding economics, if you haven't read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do profit makers (emphasis mine). It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power."

He goes on to say that the impact of the Trump administration will be bigger than what eggheads like me are calculating from tax and spending changes, because it could "ignite animal spirits and attract productive capital." There is a lot more in the post, which you can read here.

Kind of puts our earlier discussion about trend following into perspective. So far, since the election, we've seen:

1) Stocks up

2) Bonds down

3) Banks up

4) Energy up

5) Utilities/REITs down

6) Dollar stronger

Go and read the Ray Dalio LinkedIn post and tell me if you think 1), 2), 3), 4), 5), and 6) are going to turn around and go the other way. The Trump administration hasn't even started yet!

So the challenge here is to think about what is priced in and what's not.

Lots of people think that the entire four years of Trump have been fully priced into financial markets, one month after the election. With stocks up 3-4% or so. With 10-year note yields up 1%. That is absurd.

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